ii view: optimistic Wetherspoon sees glass half full

Final quarter trading for 10 weeks to 7 July

• Like-for-like sales up 5.8%
• Sales per pub up approximately 21% from pre-pandemic levels

Guidance:

• Expects year-end net debt of £670 million, down from £694 million in late January

ii round-up:

Started in 1979, Wetherspoon (J D) (LSE:JDW) today operates 801 pubs across the UK and Ireland with around 50 also offering an attached hotel.

Headquartered in Watford, Hertfordshire, it employs over 42,000 people.

For a round-up of this latest trading update announced on 10 July, please click here. 

ii view:

Coming to the stock market in 1992, Wetherspoon is known for converting unconventional premises such as former cinemas and banks into pubs. The FTSE 250 company’s estate peaked at 955 outlets in December 2015, with management recently hinting at a possible return to 1,000 pubs at some point. Bar sales in its last financial year generated its biggest slice of revenue at around 57%, with food a further 38%, slot and fruit machines 3% and pub hotels most of the 2% balance.

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For investors, high borrowing costs continue to pressure consumer spending. Business costs including wages, energy and property repairs have all risen since the pandemic. The weather regularly impacts customer demand and sales, while there's been no dividend since the start of the pandemic despite some share buyback activity. 

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To the upside, sales and profits have recovered from the Covid crisis with total sales at record levels despite running fewer pubs. Investment in areas such as beer gardens and improved beer dispense systems is being made. A recently revamped food menu may now be assisting sales, while competition has eased since the pandemic given the failure of some smaller players.

For now, and while some caution looks sensible, a value proposition in tough economic times and a consensus fair value analyst estimate near 900p per share may convince investors to keep faith in the pub chain.

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Tough economic backdrop
• Elevated costs

The average rating of stock market analysts:

Strong hold